The Rise of China’s Drones

As much of the rest of the world has taken a lackadaisical approach to investing in drones, China quickly grabbed the opportunity. Now, the country is primed to guide the industry for the foreseeable future.

Drones are a young and multifaceted industry that have only recently begun to show their true potential. Particularly in China, drones are now being used to change the business landscape and alter how companies conduct their operations in a wide variety of commercial sectors, from agriculture to mining to cinematography.

China is leading the rise of the drone industry, with five out of the world’s top 11 venture capital-funded drone companies residing in the country. Foreign companies are already beginning to participate in the Middle Kingdom’s drone market – in August 2015, Intel invested US$60 million in Chinese drone manufacturer Yuneec.

Commercial drone usage in China
The agriculture sector is particularly suited for drones, and some provinces such as Henan, Zhejiang and Hubei are encouraging companies to implement agricultural drone use by offering training sessions, licensing assistance and financial reimbursements. Drones are more efficient than manual labor for certain tasks in the agricultural sector; according to a report by Smart Agriculture Analytics, drones can spray up to 100-130 acres of pesticides and fertilizers in one day, at only 40 percent of the cost of manual labor. With other reports stating that drones are 15-40 times more effective than human labor, it seems logical that Chinese companies will increasingly be adopting drones for agricultural operations.

For example, Chinese engineers are developing solar powered drones that can stay airborne for at least a month, according to Shi Wen, head of unmanned aircraft development at the China Academy of Aerospace Aerodynamics (CAAA)

However, there are still challenges preventing agricultural drone use from being implemented nationwide. Since rural farmers often lack education and are not accustomed to using this kind of technology, the cost of training them to operate drones would be quite high. Technological limitations such as battery life and carrying capabilities also pose barriers, though drone technology is rapidly improving. For example, Chinese engineers are developing solar powered drones that can stay airborne for at least a month, and according to Shi Wen, head of unmanned aircraft development at the China Academy of Aerospace Aerodynamics (CAAA), the next generation of drones will be able to carry a payload of at least 50 kg.

Drones are not being used exclusively for agriculture in China; they are also being used in the photography and filmmaking sectors, among others. Aerial photography has been given a big bump thanks to drones, with many photographers using these devices to get pictures that would otherwise be impossible to obtain.

Regulations facing drone use
Certain commercial drone uses in China can be limited, such as for companies like Alibaba that are exploring drones for delivery and fulfillment purposes. There are still significant safety concerns over drone use, as demonstrated by an online video that went viral showing a drone crashing into a landing military jet while Alibaba was testing its delivery system.

As is the case with most regulations in China, rules around drone use differ depending on the region. Densely populated areas will have stricter policies concerning when drones can be flown and what flight path they are allowed to take. The extent of the regulations vary for small, consumer drones and larger, commercial-purpose drones, as there is more freedom to operate the former. China wants to support its booming consumer drone market, but still needs to regulate it in order to avoid accidents from happening.

Additionally, in 2015, the Chinese government implemented an export limit on drones due to national security concerns. If the device meets certain requirements – such as being able to stay airborne for longer than an hour, operate in bad weather, and reach altitudes of over 1.5 km – then it will be faced with this export limit. China’s Ministry of Commerce did not clarify how exporting this level of drones constitutes a threat to national security, but companies exporting drones that meet specifications will have to apply for a special exporting license. This rule does not apply to consumer drones, however, as they generally only have a battery life of 30 minutes, are unable to reach high altitudes, and cannot operate in strong winds. As long as the drone does not meet the aforementioned criteria, then they will be exempt from the regulation.

Takeaways
With the drone industry still in its infancy, it remains to be seen what shape it will ultimately take. However, China has already established a leading position in the industry, with Chinese company Dajiang Innovation (DJI) estimated to have accounted for 70 percent of the drone market in 2015. Given China’s dominance in manufacturing consumer and commercial drones, the Middle Kingdom looks set to be at the industry’s forefront for the foreseeable future. With investment increasing and leading to greater innovation, the Chinese drone market is one that should not be ignored.

Since its establishment in 1992, Dezan Shira & Associates has guided foreign clients through South China and Asia’s complex regulatory environment, assisting with legal, accounting, tax, internal control, HR, payroll and audit matters. As one of the most experienced and longest established practices in the Pearl River Delta with over 70 professionals well versed in practical China knowledge, we are your reliable partner for business expansion in this region and beyond.

To schedule a free consultation on how your business can benefit from the latest regulatory changes in South China and other regions, please contact Mr. Stephen O’Regan at +86 186 2007 3991, email us at dongguan@dezshira.com or visit www.dezshira.com